Hopefully people here can provide some unbiased advice… My dad is approaching retirement and has built a solid nest egg that needs management, but also has a large farm which means big tax/estate issues to worry about too.
How do you go about finding a manager, just cold-email all the PWM shops in town? How do you ensure they aren’t going to drain your account dry, or high-tail it Bernie Maddoff style?
I may have my letters but FP&A doesn’t really expose me to the buy side at all. I just don’t want to risk whittling dads retirement (and my inheritance) away to nothing.
This could not be worse advice. And I’m a huge advocate for DIY vanguard investing.
I work for a PWM and would be happy to talk with you more privately to answer other questions you might have or make a referral based on your dads location, but here are some basics…
Make sure they’re a firm that has experts from a broad range of diciplines…CPAs, CFPs, JD’s, CFA, etc. Don’t necessarily need to have all the credentials, but you want a team working for your Dad, not just some individual guy.
Obviously, needs to be a fiduciary firm.
Just because your dad has wealth, does not mean he needs a complex investment strategy. Please don’t allow him to invest in high commission illiquid products that claim to be ‘only for sophisticated investors’. He doesn’t need that.
A good PWM adds value through efficient tax planning that coordinates with the investment strategy. Your dad will have some estate planning needs that will ease his concerns and will ensure he is using his wealth to accomplish what is important to him, be it charity, gifting to children/grandchildren, etc.
Proper planning can ensure a much more tax efficient transfer of wealth to heirs/charity. This is another huge area of importance.
Your dad should be focused on the character makeup of the firm, the transparency of the firm, and the incentives inherent in their model. You want a firm that is easy to understand, has the experience to be effective on the tax/estate planning side, and are honest about what your dad needs, rather than focusing on delivering exceptional investment returns. Proper tax management and estate planning can save your dad much more money than beating the market by a few % per year.
Also…on your concerns about them running off with money. There are firms that allow independent 3rd party auditors to assess the validity of the firm, the strength and transparency of their strategies and bring to light any weaknesses. Look online for various 3rd party auditors to learn more. CEFEX is one, the AIFA process is another.
It’s a pretty messed up space, and the original question is excellent. How does the average investor know who to go with?
Except all large teams of homo sapiens suffer from group think, and most end up underperforming after fees, largely because of these poor decisions and high cost structure. Individual are the ones who can actually be the exception (smart moves, low costs). Yet individuals could also be the ones that will do something crazy (higher perceived and perhaps actual risk).
It’s a pretty messed up space, which is why some people just go with ETFs.
Except you’re completely ignoring the estate planning/taxation issue which is a huge deal, particularly in this case. Also, DIY investing after retirement isn’t ideal. Most people don’t understand risk budgeting or planning for longevity risk.
Underperforming an index after fees is pretty far down the list of worries…and that’s far from a given anyway.
I agree the main benefit of a good PWM guy is the tax/estate planning, but why not invest with a ETF and just hire a tax planner, the cost is probably far less if OP’s dad has significant assets.
Most PWM firm I’ve come across basically replicate the index at much higher cost than the likes of vanguard with some simple strategies like option writing on top of it. Not much value added in terms of managing your investments and I can’t imagine a PWM better than a tax lawyer with CPA that specializes in tax/estate planning.
Still, take Bill Gates, he would have more money if he just bought ETFs. His wealth managers outperform so massively, hard to believe the estate/tax planning outweighs that (though perhaps it does). If even Gates can’t pick good people how can the average Joe??
But yeah, I get it. Husky is giving good standard industry advice.
A good tax planner can only do so much. There are extensive benefits for having your investment plan coordinate with your tax plan. Wealthy clients will have a mix of taxable, tax deferred and tax exempt assets. Building a portfolio will not just look at asset allocation, but asset location. A tax planner will not do this. Rebalancing must account for tax opportunities, again this will not be done by a tax planner. All of this can be done with low cost index funds and ETFs, but optimizing this would be difficult for the average investor, and would have big ramifications if done inappropriately.
Then you have to consider the entire estate planning side of this. There are multiple strategies that can be employed in OPs situation where there is a large, valuable, illiquid asset like a farm. Does the Dad want the farm to remain in the families name? If there are multiple children, who gets the farm at Dad’s passing? When does the farm transfer? Does it make sense to gift the farm or other assets to charity? When should gifting take place to optimize tax liability? How will capital gains taxes be paid if the decision is to sell? By whom?
For someone in this situation, you need to be able to sit down at a table and address these issues from multiple angles to find the best solution, which will be unique for every investor.